Treasuries Climb on Jobless-Claims Rise Before Payrolls

By Daniel Kruger -
Apr 4, 2013

Treasuries advanced, pushing 10-year
note yields to a three-month low, after more Americans than
projected filed applications for unemployment benefits last week
in another sign the labor market may be slowing.

The benchmark yield traded below 2 percent for a 14th day,
the longest stretch since January, as a report showed jobless
claims rose by 28,000 to 385,000 in the week ended March 30, the
highest since Nov. 24, according to the Labor Department. Ten-
year yields fell earlier as the Bank of Japan (8301) doubled monthly
bond purchases in a bid to encourage inflation. A report due
tomorrow is forecast to show the jobless rate remained at 7.7
percent.

“Demand for safety continues unabated, and until we get
sustained growth, it will continue with the domestic and global
issues,” said James Camp, managing director of fixed income in
St. Petersburg, Florida, at Eagle Asset Management Inc., which
oversees $21.5 billion. “There has been a cry to short
Treasuries, and those have been the worst trades in the capital
markets.” A short position is a bet that an asset’s value will
decline.

The U.S. 10-year yield fell five basis points, or 0.05
percentage point, to 1.76 percent at 5 p.m. New York time,
according to Bloomberg Bond Trader prices. It touched 1.756
percent, the least since Jan. 2. The price of the 2 percent note
maturing in February 2023 rose 14/32, or $4.38 per $1,000 face
value, to 102 4/32.

Moving Averages

The yield closed below its 100-day moving average of 1.83
percent for the first time since Dec. 11 yesterday after a
weaker-than-forecast private jobs report, and today fell toward
its 200-day moving average at 1.74 percent. Moving averages are
indicators of momentum.

Having fallen below the bottom of the trading range, which
had been between 1.8 percent and 2.08 percent, benchmark 10-year
Treasury notes now have bullish momentum, according George Davis, chief technical analyst for fixed income in Toronto at
the bank’s RBC Capital Markets unit. Toronto at the bank’s RBC
Capital Markets unit.

“We’ve had better economic data in general this year, and
some resolution of the Cyprus issue, and still Treasuries
rejected the top end of the range, and have performed strongly,
meaning the bar is high for economic data to move the market,”
Davis said at the Bloomberg News building in New York.

The yield on the 30-year bond dropped six basis points to
2.99 percent, touching that level for the first time since Jan.
24, while breaching its 100-day moving average at 3.02 percent.
Its 200-day moving average is 2.9 percent.

‘Grind Lower’

U.S. government securities rose to the costliest level this
year. The 10-year term premium, a model that includes
expectations for interest rates, growth and inflation, was at
negative 0.8 percent today, the most expensive since Dec. 28. A
negative reading indicates investors are willing to accept
yields below what’s considered fair value.

Heading into the release of February payroll data last
month “the talk was we’re going to 2.25 percent,” said Justin Lederer, an interest-rate strategist in New York at Cantor
Fitzgerald LP, one of 21 primary dealers that trade with the
Fed. “Now it’s, ‘are we going to 1.50 percent’ tomorrow. It
feels like we could continue to grind lower.”

Employers may have hired 190,000 workers last month, a
report due tomorrow is forecast to show, down from a gain of
236,000 in February that drove benchmark yields to an 11-month
high of 2.08 percent on March 8 when the Labor Department
released the report.

Bank Buying

The rise in jobless claims reported today may reflect the
difficulty the government has adjusting the figures around the
Easter holiday and spring break at schools. The median forecast
of 47 economists surveyed by Bloomberg called for a drop to
353,000. Before adjusting for seasonal variations, claims fell
by almost 1,600.

The Federal Open Market Committee said last month it would
keep buying bonds as long as unemployment remained above 6.5
percent and the outlook for inflation was for a rate of less
than 2.5 percent.

The difference between rates on 10-year notes and Treasury
Inflation Protected Securities, which reflects the outlook among
traders for consumer prices, was 2.5 percentage points. It
touched 2.4778, the least since Jan. 7. The five-year average is
2.03 percentage points.

The Fed and the BOJ are both buying government bonds to
spur growth by putting downward pressure on borrowing costs. The
U.S. central bank purchases $85 billion of Treasury and mortgage
debt a month, including $1.575 billion of Treasuries today
maturing between February 2036 and May 2042.

Rally ‘Surprise’

With Haruhiko Kuroda presiding over his first meeting since
becoming BOJ governor, the board streamlined its asset-purchase
programs and said it will buy 7 trillion yen ($73 billion) of
bonds a month. The BOJ also said it will target Japan’s monetary
base instead of the rate banks charge each other on overnight
loans.

“People just think 10-year government bonds in Japan are
going to zero and the only thing left to buy are U.S.
Treasuries,” said Thomas di Galoma, a managing director at
Navigate Advisors, a brokerage for institutional investors in
Stamford, Connecticut. “This rally has got people by
surprise.” Japan’s 10-year yield fell as much as 12.5 basis
points today to 0.44 percent.

The U.S. government will sell $66 billion of notes and
bonds on three consecutive days next week, starting with $32
billion of three-year notes on April 9, followed by $21 billion
of 10-year debt the next day and $13 billion of 30-year
securities on April 11.